re mortgage and tax relief

milo909 · 11 January 2008 at 11:18PM

Hi folks, I wonder if you can help. I own a flat with no mortgage which I plan to lease out. I wish to re mortgage the property then rent it out. Can I offset the cost of the re mortgage against the rentable income even though I only have a mortgage to raise capital for another project?
Sorry if I have posted this in the wrong place and thanks in advance, milo.

silvercar · 12 January 2008 at 12:39AM

yes, the interest payments only.

milo909 · 12 January 2008 at 3:11PM

Thanks silvercar for you response, milo.

lisyloo · 12 January 2008 at 3:48PM

Can I offset the cost of the re mortgage against the rentable income even though I only have a mortgage to raise capital for another project?

I personally think the answer is no.
It's the purpose of the mortgage that's important and not the actual property it's on.

The purpose of this mortgage is not for this rental so I don't think it's tax de-ductible.

I suggest you talk to the inland revenue or search some knowledgeable bulletin boards (like the motley fool).

I would not rely totally on advice given here (and that's includes mine).

You are responsible for paying the right taxes so make sure you have the right advice.
Bulletin boards are great for getting ideas from but you should always do your own due dilligence as people can make genuine mistakes and you shouldn't base your strategy on that.

milo909 · 12 January 2008 at 4:25PM

Thanks lisyloo, the motley fool link is useful as I had never heard of it before and thanks for your input. It is a difficult situation but I was trying to suss if there was a simple answer, if not I will get an accountant to look at it, cheers milo.

MarkyMarkD · 12 January 2008 at 4:26PM

Silvercar is right, and lisyloo is wrong, in this case.

Because the OP wishes to start a rental business using an asset which they already own, they are transferring both the property and the mortgage into the rental business. The interest payments are therefore fully offsettable against any rental income, net of rental expenses.

Lisy is thinking of other threads on a similar subject. It is quite right that it's the purpose of the mortgage that's important, not the security, But the purpose of this mortgage is 100% to fund the rental business.

Without the mortgage, the rental business would effectively owe the OP the value of the property; the mortgage is used by the rental business to repay the OP the money owed.

The one restriction is that, if the property was already rented out and already had a mortgage on it, it would not be possible for the OP to remortgage and withdraw equity from the property beyond the value of the property at the start of the rental business because that would represent the OP owing the rental business money which isn't allowed. Or rather, that could happen, but the interest would only be eligible for tax relief against the rental income to the extent that the borrowings were within the original property value.

I hope that's clear!

lisyloo · 12 January 2008 at 4:40PM

Silvercar is right, and lisyloo is wrong, in this case.

Like I said, don't rely on what people say on here

Sorry if I got it wrong or mis-understood the situtation.

milo909 · 12 January 2008 at 10:39PM

Thanks Markymarkd for your response. What you have said make sense although I had to read it a couple of times. As I said before I will check this out officially but its good to try to get an idea before hand.
Thanks to everyone even those with different ideas, everyone has the best of intentions with their help, thanks again, milo.

jimmo · 13 January 2008 at 1:02AM

Silvercar is right.
Take a look here http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

milo909 · 13 January 2008 at 11:13PM

Cheers Jimmo, more great info from this great forum, milo.

re mortgage and tax relief

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